Organisation and financing of occupational pension funds

Financing

The 2nd pillar is financed through capitalisation. Throughout their actives lives, all age categories constitute a capital. This capital consists of employers' contributions, employees' contributions, and of an annual interest (1 % from 1 January 2017). A cover capital is invested to guarantee the payment of future benefits. The state contributes only indirectly to the financing of pension funds, by granting tax exemption on the contributions and 2nd pillar assets.

Employers' contributions

The amount varies from one pension fund to the next. The law requires only that the employer's contribution must be at least equal to the sum of the contributions of all his employees, although he is free to pay more.

Which salaries must be insured?

In order to reach the objectives defined by the law, 1st and 2nd pillar benefits are linked. Thus, the income that must be insured in an occupational pension scheme is sometimes called "coordinated salary". This is equal to the gross annual income minus the coordination deduction. The amount of the coordination deduction is equal to the salary (annual gross income) threshold over which the insured must pay LPP contributions to the 2nd pillar. The upper limit of the insured salary isthe maximum salary that must be insured (three times the maximum AVS pension).

Limits Since 1.1.2015 until 31.12.2018
Minimum annual salary (LPP threshold) Fr. 21'150.-- (and 21'330.-- from 2019)
Coordination deduction Fr. 24'675.-- (and 24'885.-- from 2019)
Upper limit of annual salary Fr. 84'600.-- (and 85'320.-- from 2019)
Maximum coordinated salary Fr. 59'925.-- (and 60'435.-- from 2019)
Minimum coordinated salary Fr. 3'525.-- (and 3'555.-- from 2019)

Regulations on investments

The LPP contains regulations with which pension funds must comply for their investments. They must be cautious in their investment decisions and spread available capital among various investment categories. They must strive for a return corresponding to that in the monetary, financial and real estate markets.

Investments must also be made for the short, the medium and the long term, so that benefits and vested benefits can be paid when required.

Implementation

The institutions that implement occupational pension schemes pursuant to the terms of the LPP must be registered. They are subject to joint management, i.e. the managing body must include as many representatives of employees as of employers, having the same rights. The insured elect their representatives directly or by proxy (delegates).

The obligation to inform is particularly important. The pension fund must each year inform its members of their rights relative to benefits, on the coordinated salary, contribution rates, their old age assets, on organisation and financing, as well as of the members of the joint management body. Insured persons may request to see the annual accounts and the annual report. Moreover, the institution must inform the insured who request it of return on capital, the evolution of actuarial risk, administrative costs, the principles according to which the cover capital is calculated, additional provisions, and the degree of coverage, pursuant to Article 86b LPP.

Supervision

A recognised auditing body controls the management, the accounts and investments of the pension funds each year. Periodic controls are also undertaken by a pension scheme expert. Cantonal surveillance authorities check that pension funds comply with legal provisions and regulations. The supreme surveillance body is the occupational pension funds supervisory committee.

Suppletive institution

There are two special institutions to second the ordinary ones: the guarantee fund and the auxiliary fund.

The suppletive institution ("institution supplétive") insures employees whose employer is not affiliated with any officially registered pension scheme. It also insures those who wish to do so on an optional basis - the self-employed, for example - as well as those who are no longer affiliated with any other pension fund. Finally, it insures the recipients of unemployment compensation against the risk of death or disability. It is financed by all concerned parties, which is why it is also called a "collective fund".

Guarantee fund

The guarantee fund ("fonds de garantie") which operates throughout Switzerland, is financed by the contributions of all pension funds. It subsidises institutions with an unfavourable age structure. This is the case when old age bonuses amount to more than 14 % of the sum of coordinated salaries.

The fund also guarantees statutory benefits owed by insolvent pension funds. However, the guarantee in the event of insolvency only covers benefits that are not more than one and a half times the upper limit of the insured salary; in other words, benefits are paid only to the amount of CHF 126 360 (and CHF 127 980 from 2019).

Funds providing "over-obligatory" benefits

There are funds that provide benefits going beyond the statutory benefits defined by the LPP. In this case we speak of "over-obligatory" schemes, or pillar 2b.

The funds that offer only such schemes are not subject to the LPP. They are usually chosen by people who already have minimum statutory insurance in another pension fund.

Further information

https://www.bsv.admin.ch/content/bsv/en/home/social-insurance/bv/grundlagen-und-gesetze/grundlagen/organisation-und-finanzierung.html